Next year, Advanced Micro Devices plans to release the first of its Fusion chip family, which combines processor cores and a graphics engine on the same chip. But AMD isn’t alone in its efforts: Intel also plans to combine graphics capabilities with its processors, including low-cost Atom chips for laptops and desktops.

Called Pineview, the new chip package will likely hit the market late next year and includes a processor that combines an Atom core and graphics on the same chip, a version of the Lincroft system-on-chip (SOC) that powers Intel’s upcoming Moorestown platform for mobile Internet devices.

While the Atom processor core used in Pineview remains largely the same as current Atom chips, Intel has made refinements to the design that further lower its already miserly power consumption, said Belliappa Kuttanna, the principal architect of Intel’s Atom architecture, in an interview.

The upcoming Atom processor also includes an integrated memory controller with direct links to main memory to improve system performance.

“Now that we’re in an SOC environment, we have opportunities for more efficient power management of the subsystems within the SOC, like graphics, display, etc., that involve some CPU interaction, so we went ahead and added those types of mechanisms to Lincroft,” he said.

The latest Intel disclosures increase the pressure on AMD, which plans to detail its own product roadmap for low-cost laptops at an analyst conference to be held on Nov. 13. AMD is planning to add graphics capabilities to a range of processors as part of its Fusion chip family starting in 2009, and such capabilities will likely be added to chips intended to compete with Atom.

Intel has also said it plans to integrate graphics capabilities with some models in its Nehalem processor family, with these chips expected to hit the market during late 2009 or early 2010. The first versions of Nehalem, a series of desktop chips due to arrive next month, will not include graphics capabilities.

Kuttanna didn’t detail the graphics technology used with Pineview, saying only that it’s not the same integrated graphics processor, the Intel Graphics Media Accelerator X4500HD, used with the company’s G45 Express chipset. Pineview will also include a hardware decoder for high-definition video, he said.

Graphics and video performance are two areas where the current Atom lineup is considered weak. But graphics is not Intel’s strength, particularly when stacked against the cutting-edge technology of AMD’s ATI division.

One detail of Pineview that Kuttanna declined to discuss is size. Current Atom processors are very small, allowing 2,500 of them to be manufactured using a single 300-millimeter wafer. The small size keeps down unit manufacturing costs and allows Intel to earn a healthy profit margin on each chip, even when they are sold at a low price.

Adding a memory controller and graphics processor to the chip will increase the size of the chips, which will be manufactured with the same 45-nanometer process used to make the current Atom chips. This likely means that fewer Pineview processors can be produced on a single wafer.

If unit production costs are higher for Pineview, this could eat into Intel’s profit margins unless the chips are sold at a higher price. Ultimately, the impact on Intel’s profit margins will also depend on the cost to produce the chipset that will be used with Pineview. If this cost is lower than the chipset now used with Atom, Intel can maintain or even improve its overall margins in this product segment.

Pineview isn’t the only Atom variant in the works.

On Monday, Intel showed a video of the first Moorestown chips, said to be three days old at the time, running on a validation board in an Intel lab. Moorestown is currently scheduled to be released sometime in either 2009 or 2010.

Intel is working on two other variants of Atom. A version called Menlow XL for embedded applications will be released during the first quarter of 2009. A variant called Sodaville is also in the works for consumer electronics.